Heartland Express sees no demand uptick in Q2

Truckload carrier Heartland Express said Monday it hasn’t seen a seasonal improvement in demand.

Heartland (NASDAQ: HTLD) reported second-quarter earnings per share of 10 cents, 6 cents light of the consensus estimate and well below the 29 cents it booked last year (excluding gains on real estate sales). The quarter included roughly $6 million in incremental interest expense from debt used to fund the acquisitions of Contract Freighters and Smith Transport.

Gains on equipment sales were only modestly lower in the period.

Consolidated revenue was up 63% year over year (y/y) to $306 million. The increase was due to the acquisitions and was partially offset by continued softness in demand. The company’s 93.4% adjusted operating ratio was 1,530 basis points worse y/y as it attempts to integrate both acquisitions on the downside of the cycle.

The company’s legacy operations and Millis Transfer (acquired in 2019), reported an 87.7% OR. However, its recently acquired fleets were barely breakeven on the operating line, posting a 99.8% OR.

“Freight volumes began leveling out near the end of the first quarter of 2023, which followed the strong freight environment for the previous two years,” said CEO Mike Gerdin in a news release. “There was no meaningful improvement in general freight demand during the second quarter of 2023.”

Most expense lines increased as a percentage of revenue, with the compensation line (up 420 bps) and rents and purchased transportation (up 760 bps) seeing the biggest increases.

“We still see an effective path for future operational improvements at both Smith Transport and CFI and remain confident that we can improve their respective operating ratios to align with our legacy Heartland Express operational expectations,” Gerdin said.

Heartland does not provide operating metrics for utilization and pricing.

The company had nearly $350 million in debt and leasing obligations at the close of the second quarter. It has paid off $146 million since making the acquisitions a year ago.

“Given what we have experienced and based on feedback from our customers, we expect volatile freight demand for at least the next quarter of 2023 and look to the holiday season of the fourth quarter for potential improvements in the freight demand environment,” Gerdin said.

Shares of HTLD were off 2.9% at 1:22 p.m. Monday compared to the S&P 500, which was down 0.1%.

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